Small-Balance Arena Needs Broader Mix

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IRVINE, CA—Although there are plenty of small-balance deals in need of financing right now, few lenders in the category offer a wide enough variety of products to satisfy borrowers\’ needs,  ReadyCap Commercial ’s chief production officer  Craig Barnes  tells We spoke with Barnes exclusively about what differentiates his firm from others in the small-lending space. What does ReadyCap provide in the small-balance commercial-loan landscape that differs from your competitors?
Barnes:  It really starts with the fact that we invest from our own balance sheet. Within that context, we have a pretty wide array of types of assets and risk profiles in which we invest, from high-quality  apartments  at low rates to transitional properties being improved or changing use. We invest in a range of risk profiles, from high-quality assets to assets with a high yield and higher risk profile. We offer a wide array of solutions to the small-balance market, which we define as between $1 million and $10 million. And we’re one of the few  Freddie Mac  SBL lender seller/servicers. What challenges do small-balance commercial lenders have when there is so much competition among buyers for so few deals?
Barnes:  There are many deals out there that need financing in the small-balance arena. The interesting part of small balance is sorting through all the numbers of small loans to find the deals that work. It’s a matter of poring through all the deals that are out there, trying to match the right deal with the right lending platform. There are few lenders that do soup-to-nuts in small balance with a broad product mix. Once you narrow the search, there may be two or three lenders for that particular deal, and then it becomes a normal competitive situation. It’s a matter of who’s able to provide the right terms to meet the borrower’s expectations. What new services and products are borrowers in this space seeking, and how are you meeting these demands?
Barnes:  While there may not be much in the way of new services and products, one theme we are seeing is a great deal of property   repositioning . Most of the properties in this situation have been around a long time and have some age on them, so there’s a lot of re-tenanting and repositioning going on. When a property is going through that small repositioning space, borrowers are seeking capital at various levels depending on what that repositioning would be. The actual inventory of small balance is quite diverse— multifamily  is being upgraded to try to raise rents,  retail  may try a new storefront to keep it  leased  and in other asset classes the owner is trying to keep competitive for the area. That is how the repositioning theme materializes. What else should our readers know about ReadyCap?
Barnes:  We’re a specialty finance company with our own balance sheet, which is very important to our success on the market. This gives us a supply of capital where we’re investing our own money—not just brokering someone else’s money.
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